skip to main |
skip to sidebar
If you're an investor looking to make some purchases, you may want to wait out the summer. There has been a huge shift in the market's sentiment over the last few weeks and traders are showing signs of fatigue. Many traders and professionals are predicting that this summer won't be so hot for stocks.
Last year, traders following the adage “Sell in May, stay away” lost out on a decent summer run up. But this year, the market is entering summer with a little less optimism. May 22 was a critical juncture as charts went bearish. For traders using candlestick charts, there were signals that bullish sentiment was fading. Ben Bernanke’s remarks about cutting back on monetary stimulus has introduced much needed volatility back into the market. For the first time this year, the Dow Jones Industrial Average lost value for three consecutive days this week.
Sentiment has shifted from a “buy on the lows” to “sell on the rallies.” The indices have been unable to break new highs and many large cap leaders have seen their shares revisit support levels instead of testing resistance. The charts do not look very favourable in the near to short term. Many stock charts look nearly identical to that of the indices, which does not bode well for traders looking to find leaders. Although the uptrend is still intact, the double retracement to the support trend line in a matter of days could be seen as a sign of sellers taking over.
Here are some big-name NASDAQ components that have showed some decay in bullishness.
Google (GOOG), a market leader, has not seen its shares climb back above $900. It was touted as being the next stock to hit $1,000, but those predictions will have to be delayed.
Shares of Netflix (NFLX) are developing a head and shoulders top. And if the stock trades below $200, shorts may come in.
Other leaders like Apple (AAPL) tried to reverse upwards but has seen its shares fall.
Facebook (FB) moved higher earlier in the spring courtesy earnings but have fallen to the lowest levels of 2013. Optimism has worn out as the company introduces insignificant updates to enhance shareholder value.
Volatility and uncertainty have taken focus no doubt. It appears big traders are placing bets that the market will make a big move in one way or another. Check out these option trades from Monday.
Staples (SPLS) reached new highs but saw one trader buy to open 10,000 September 15 put options for just $0.15 and then another 5,000 contracts for $0.85. The shares closed at $15.51 on Monday. Total volume on the day was 15,084. The trader makes profit if the stock falls below $14.62 by September or if the option values rise above $0.38.
Pfizer (PFE) options also pointed to a big move. A trader implemented a long straddle buying 65,000 $35 calls and puts for July - prices not available. A long straddle combines two different predictions that the stock will be above $35 and below $35 on the third Friday of July. Because this is not possible, the goal of the trade is that the winning option’s gain is larger than the losing option’s loss. The further the stock trades from $35 in any direction, the more the trader earns. This is a strange trade as the stock is $28 today.
On the other hand, Dupont (DD) was on alert on Monday when 15,000 October 57.50 calls were bought to open and 15,000 October 50 puts were sold to open. Some are saying a trader or firm is making a bet that it will break out above its resistance. However, taking the options route is a cheaper alternative than buying the shares out right, as it cost this trader just $0.30 a share versus $55 to control the 1.5 million shares.
Prior to the three-day loss, put options to open on Monday outgrew call options. On Monday, traders ready to capture on the decline bought to open 2.08 million put contracts versus 1.67 million calls. It appears that short-term traders were anticipating this decline. Get ready for an exciting summer, traders.
